【正文】 nt local practice varies, add plexity and delay to project? Incumbent can take advantage of timeframe loopholes, add delays at local level? Central control over local TAB(2) varies due to varied degree of separation, lead to different degree of just and resolution timeframe? Upward propagation to MII time consuming, adding delays to resolution? Future economics: up to 30% of revenue paid to PSTN based on ? Incumbent can take advantage of capacity constraints to delay interconnect at local level? Some incumbent local branches require CNC to pay for investment, ownership goes to incumbent, adds cost to CNC serviceNote 1: Point Of Interconnect 2: Telemunications Administration Bureau 19 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHICLEAR GUIDANCE FOR INTERCONNECT ALREADY PUBLISHED, LOCAL PTA OBLIGED TO FOLLOW Local PTA can be resistant, also its anization not suitable for quick execution? The policy decision requesting local PTAs to corporate with interconnection trickles from top down: the central 222。? otherwise CNC see margin reducing? No settlement ? No settlement? No settlementCNC CNC End userPTASwitchSHPSTNSwitchCNC backbone(1)Switch SwitchBJPSTNPTATransmission(paid by CNC)Fees:12Transmission(paid by CNC)Note 1: Currently leased from CT. Own backbone by July 2023ExampleInterconnectionBackup 22 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHITERMINATION SETTLEMENT MAY REDUCE CNC MARGIN (II)Example: National Long DistanceBackupCNC pays PTACNC paysPTAKeepIPphone price the sameCustomerpays PTA(1)IPphone priceCustomerpays PTAIPphone priceNew IPphone priceCurrent IPphone Trial Stage scenario: no settlementCNC Alternative I CNC Alternative IIPossible scenario for 2023: no settlement1RMB/minNote 1: PTA charges customer on 3 minute units, per 3 min. Calculation for this example uses average per minute rate of , assuming customer calls long enough duration.Source: BJ PTAPossible scenario for 2023: settlement rate for both origination and termination ends2? Increase IP price to cover settlement cost? Customer doesn’t pay PTA but perceive IPphone price increase? CNC maintain current IPphone revenue? Keep IP price same? Customer doesn’t pay PTA nor perceive IPphone price increase? CNC pays PTA out of IPphone ine? CNC revenue = 54% of current IPphone revenue? CNC retains 100% of IPphone price as revenue? CNC retains 100% of IPphone price as revenueThe economics. CNC would lobby for new settlement rate specific to IPphone economics 23 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHIKEY PRICING REGULATION ISSUES AND IMPLICATION TO CNCKey Issues Assumptions Implication to CNC? Regulation follows costbased pricing guideline? Carriers obliged to publish accounting data assisting pricing regulation? Price floor specified for incumbent? New entrant has flexible price range around incumbent rate? Local, NLD, IDD, wireless, satellite? National leased lines? Price Bureau within each provincial government sets prices according to local standard of living and inflation rates? Local PTAs will have autonomy? Since local works have been built by local PTA investments, local PTA has strong influence on local price levelsGeneral pricing rulesDifferential TreatmentCentral controlLocal control / Geographic practice? Usually high initial CNC cost position due to leasing access and settlement? Short term uncertainty in price based petitiveness? Some flexibility in pricing of CNC product offering? Advantageous long term petition capability over incumbent? Clarity in pricing is favorable to CNC? But limits CNC pricing flexibility? Disadvantageous local price based petitive position in some geographies? Varied cost structure across geographies plicates product management process, difficult for CNC to have consistent pricing, and hence, image. 24 China Net The Boston Consulting GroupConfidentialDestroy by Shredding4503405Interim14Dec99TZDgxSHILEASED LINE COST HIGHEST AMONG INTERCONNECT COSTSApproximately RMB 134K/month to Link up One CityItem Cost per month (in RMB1,000)Leased line to local PTA? Capacity: 2 M bps? Number of channels: 30Domestic LD transport(1)Total for connecting up one cityLeased line to international gateway? E1 capacityTotal for IDD from one city9100150109 159 222。 city PTA? City PTA before implementation will generally ask for lead time for verification with upper levels. . in some cases new entrant has to wait for extended time period for this process? Under the Market Department’s coordination, there are up to 18 independent departments within each city PTA to cooperate for the execution and resource planning of interconnect? Each of these department can add delay to the process, lead times add up? In case of insufficient resource, the requesting and approval process for expansion / upgrade is even longer? Local PTA can easily use resource constraint as an excuse for delay in interconnection… But interconnection is feasible? CNC has so far been able to reach interconnect contract at provincial levels? Most PTAs in CNC’s target cities displayed timely cooperationIn order to ensure quick execution, CNC should? Understand and incorporate into planning process the status of incumbent work resources? Give lead time in planning and municating intention to interconnect with the incumbent? Build strong munication channel with all levels of PTAs? Coordinate for good timing across all levels。